TaxTMI 
TaxTMI 
2021 (4) TMI 1361
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.... finance lease agreements and loans to purchase networking equipment from Cisco SI BV/third-party resellers. 2.1. For the year under consideration, assessee filed its return of income declaring 'nil' income on 29/11/2015 after setting off brought forward losses. The case was selected for scrutiny and relevant statutory notices were issued to the assessee. Subsequently, the assessee filed revised return of income on 28/03/2017 declaring 'nil' total income after setting off brought forward losses. The Ld.AO observed that assessee had international transaction of Rs.10 crore or more in earlier assessment year and the issue was pending in appeal. Accordingly, the relevant assessment year was referred to transfer pricing officer for computing the arm's length price as per provisions of section 92CA of the Act. 2.2. Upon receipt of reference, the Ld. TPO called for economic details of the international transaction entered into between assessee and its AE. The Ld. TPO on verification of the details filed by assessee, did not make any adjustment to the international transaction entered into by assessee. However, in relation to the specified domestic transaction pertaining to administ....
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....07,33,348/-. 2.6. On receipt of the draft assessment order, assessee filed objections before the DRP. Before DRP assessee filed additional evidences. However the DRP following its order for assessment year 2011-12 to 2014-15, upheld disallowance of depreciation claimed by assessee on assets leased out under finance lease arrangement. The DRP also rejected the alternate plea of assessee to grant depreciation on the opening WDV of the block of assets leased out under finance lease arrangement. 2.7. The DRP further disallowed set off of brought forward depreciation loss by following its own order for assessment year 2009-10 to 2014-15. 2.8. In respect of the Transfer Pricing adjustment, the DRP excluded one comparable, being M/s Asian Business Conference Exhibitions Ltd. The DRP observed as under:- "The DRP on analyzing the group overview and TP documentation maintained, has concluded that Cisco Capital only assumes routine market risk associated with Interest and capital risk and does not bear market risk for product sales. Further the DRP has also stated that the FAR analysis of the Appellant and AEs indicate that marketing functions and market risks are borne by t....
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....st be granted to assessee as claimed. 3.2. As the department has not been able to bring out any factual difference for the year under consideration vis-à-vis the preceding assessment years, we also remand this issue back to the Ld.AO with similar direction. Accordingly these ground raised by assessee stands allowed for statistical purposes. 4. Ground No. 3 is raised against not allowing set off of brought forward depreciation loss. 4.1. The Ld.AR submitted that, in the return of income filed by assessee, it had claimed set off of brought forward depreciation of loss amounting to Rs.28,54,47,236/- pertaining to assessment year 2009-10 and Rs.83,52,86,117/- pertaining to assessment year 2013- 14, totalling to Rs.1,12,07,33,535/-. The Ld.AO while passing the draft assessment order denied the claim of assessee. The Ld.AO while passing final assessment order noted that that on completion of assessment for assessment year 2008-09, 2009-10 and 2013-14, the income has resulted in positive, and therefore no set-off of brought forward losses is available for assessee for the said years. 4.2. The Ld.AR submitted that, the Ld.AO has not given effect to the orders (hereina....
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....es have sufficient funds to purchase equipment, the third-party customers would make an outright purchase of equipment. In the event the third-party customers to not have sufficient funds for the purchase, they would consider the option to take loan financing/lease financing approach. It has been submitted that the customer may either choose to avail such services from a third-party financer or approach assessee to finance the equipment by way of loan/lease. 5.3. It has been submitted by the Ld.AR that the third-party customers are not obliged to avail such financing services from assessee exclusively, and it is the discretion of the customer to decide whether they want to avail lease/loan financing arrangement from assessee or other financers. 5.4. The Ld.AR vehemently submitted that assessee is an independent entity and acts in the capacity of an enterprise in the business of providing leasing and financing services to the third-party customers. It is also submitted that assessee bears all the entrepreneurial risk associated with its business and therefore responsible for all the functions integral to the leasing/financing business of Cisco. He submitted that since assessee....
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....eated as an international transaction under section 92B of the Act. 5.8. The next proposition argued by the Ld.AR was that, the bundled approach for benchmarking the transaction is to be accepted as the transaction of purchase of equipment from the AE by assessee for financing arrangement is held to be at arms length by the Ld.TPO. It is also been submitted that the marketing and sales support services availed by assessee from Cisco India is integral to the main business of assessee and the same has to be considered as a closely linked transaction to the principle transaction that is leasing services. Such combined transaction has been adopted by considering the entity level TNMM as most appropriate method and the subject payment has been determined to be at arm's length in the Transfer Pricing documentation. Ld.AR also submitted that the PLI adopted by assessee is OP/OE wherein while computing the operating profits the impugned payment made to Cisco India has been considered as operating expenditure. 5.9. He thus submitted that the Ld. TPO has already considered the above expenditure towards administrative and marketing and sales support services as an operating expenses whi....
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.... is to be made to a person referred to in clause (b) of subsection (2) of section 40A". We now refer to proviso to section 40A, that is inserted by Finance Act 2017 w.e.f. 01/04/2016 that reads as under: "Provided that foreign assessment year commencing on or before 1st day of April, 2016 no disallowance, on account of any expenditure being excessive or unreasonable having regard to the fair market value shall be made in respect of a specified domestic transaction referred to in section 92BA, if such transaction is at arms length price as defined in clause (ii) of section 92F". 5.15. On combined reading of the omitted provisions and the inserted proviso to section 40A, it is amply clear that the new proviso to section 40A is a saving clause by virtue of which, any specified transaction on or before 01.04.2016 has to be tested as per the provisions of section 92C. 5.16. We therefore respectfully following the ratio laid down by Hon'ble Supreme Court in case of Kolhapur Canesugar works Ltd. and General Finance Co. vs ACIT, hold that as the transaction under consideration is prior to 1/04/2016, has to pass through the tests laid down under the Transfer Pricing provis....
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.... under:- * Are there third party customers to whom assessee sells the products directly? * Are the third party customers referred to hereinabove restricted to Indian customers? 6.6. In our view the transaction needs to be bench marked separately and there has to be a segregation based on the customers who approach assessee for financing/leasing after entering into agreement with the AE, and the leasing/financing activity that assessee has with the third-party customers independently. In our view, only such services that assessee is rendering to third-party for assisting them in financing/leasing, wherein the third-party directly enter into agreement with the AE could be considered to be interlinked with the international transaction entered into by assessee with its AE. 6.7. It is also an admitted fact that assessee has been carrying out these activities in a bundled format in the preceding years which has not been objected by the Ld. TPO/AO. Further that all these expenses incurred by assessee towards administrative expenses and sales and marketing expenses stands subsumed in the operating expenses under TNMM for computing the arm's length margin of the int....
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....matters Initiating scrutiny proceedings in relation to Specified domestic transaction, not considering amendment made by Finance Act - 2017 4. The learned AO/TPO has erred in law and fact, by initiating scrutiny proceedings in relation to the specified domestic transaction of payment made by the Appellant towards the fees for administrative support services to the AE, disregarding the deletion of clause (i) of section 92BA of the Act by virtue of amendment by the Finance Act, 2017 w.e.f April 1, 2017. Transfer pricing adjustment on account of re-characterization of payment made for administration support services as Treating payment for administrative support services to Cisco India as an International transaction 5. The learned TPO/AO has failed to appreciate the fact that the agreement between Cisco Capital and Cisco India for availing of administrative support services (which was in the nature of outsourcing of services to Cisco India or deputation services by Cisco India to Cisco Capital) is bona-fide arrangement and the same cannot be treated as an international transaction under section 92B of the Act. Alleging that App....